Irving H. Picard v. Saul B. Katz et al

Filing 116

DECLARATION of David J. Sheehan in Opposition re: 80 MOTION to Strike THE EXPERT REPORTS AND TESTIMONY OF STEVE POMERANTZ AND HARRISON J. GOLDIN.. Document filed by Irving H. Picard. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4)(Sheehan, David)

Exhibit 4

390

1

C O N F I D E N T I A L

2

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
ADV. PRO. NO. 08-01789 (BRL)

3
4
5

-------------------------------x
SECURITIES INVESTOR PROTECTION
CORPORATION,

Videotaped

6
Plaintiff-Applicant,
7
8

v.

10

BERNARD L. MADOFF INVESTMENT
SECURITIES, LLC,
Defendant.
-------------------------------x
In Re:

11

BERNARD L. MADOFF,

12

Rule 2004
Examination of:

Debtor.
-------------------------------x

9

ARTHUR FRIEDMAN
(Volume III)

13
14
15

TRANSCRIPT of testimony as taken by and before

16

NANCY C. BENDISH, Certified Court Reporter, RMR, CRR

17

and Notary Public of the States of New York and New

18

Jersey, at the offices of Baker & Hostetler, 45

19

Rockefeller Plaza, New York, New York on Thursday,

20

June 24, 2010, commencing at 9:38 a.m.

21
22
23
24
25

BENDISH REPORTING, INC.
Litigation Support Services
877.404.2193
www.bendish.com

ARTHUR FRIEDMAN 6/24/10

CONFIDENTIAL

SIPC v. BLMIS
570

1

my own account statements or I want to review the

2

trade confirmation tickets that relate to my

3

investments?

4

A.

Not that I can recall.

5

Q.

6

401(k) in 1997.

7

on Madoff as a potential investment, in connection

8

with assuming the fiduciary duties of a trustee to a

9

401(k) plan?

10
11

A.
Q.

Now, you became the Trustee of the
Did you do any additional diligence

No.
To your knowledge did Michael Katz do

12

any diligence in connection with his role as a

13

trustee and the associated fiduciary duties to the

14

401(k) plan participants?

15

A.

No.

Understand at that time we had

16

been dealing with Madoff for some 11 years and a

17

great deal of money invested.

18

strange or unnecessary to do further diligence.

19

already were investing significant amounts of our

20

money and other people's money and now there was

21

understood a fiduciary duty, but we felt very

22

comfortable and we knew quite a bit, perhaps more

23

than we would know if this was the first we dealt

24

with Madoff and did thorough due diligence.

25

Q.

It would seem a bit
We

Now, for the last several days I've
BENDISH REPORTING, INC.
877.404.2193

ARTHUR FRIEDMAN 6/24/10

CONFIDENTiAL

SIPC v. BLMIS
585

JURAT

1
2

I, ARTHUR FRIEDMAN, do

3

hereby certify that I

4

have read the foregoing transcript of my testimony

5

taken on June 24, 2010, and have signed it subject

6

to the following changes:

7

LINE

8

PAGE

9

SEE ATTACHED EXHIBIT A

CORRECTION

10
:1.1

12

13

14
15
16
17
18

ARTHUR FRI EDN

19

20
21

Sworn and subscribed to before me on this day of

22
23

24

NOTARY PUBLIC:
URSULA M. MIKA
NOTARY PUBUC STATE OF NEW?

25

No.01M16216250

QUALIFIED N QUEENS COUNTY

BENDISH REPORTING, INC.

877.4042193

COMMISSION EXPIRES JANUAR' 11,2014

CONFIDENTIAL

LINE

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6
16
17

27
29
31

35
35
37

38
38
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39

40
42
43
47
52
52
53

54
56
56
57
58
59
64

69
69
71

79
86

SIPC v. BLMIS No. 08-01789-BR:
Rule 2004 Examination of Arthur Friedman
EXHIBIT A

CHANGE
ORIGINAL
proceedings. a new deposition
proceeding, a new deposition under
Rule 27 of the
6 under Rule 27 of the
president of finance, and assisted president of finance, and I assisted him
in every way
16 him in every way
medical journals, which, while I was
medical journals, which, while I
there, were sold
24 was there were sold
As a matter of fact, did some work As a matter if fact, I did some work for
them while I
3 for them while I
Lester Osternian or Tom - T.
Lester Osterman or Tom - L. Thomas
Osterman. There
10 Lester Ostemian. There
programs, anything to do with
computers, anything to do with
computers.
4 computers.
opposite. It's an option to sell a security
opposite. It's option to sell a
at a fixed price,
4 security at a fixed price,
with a designated maturity date.
with a designated maturity date, in
simplest
5 In simplest
22 Sterling Entities. Sterling Equities Sterling Equities. Sterling Equities
company, I should say. It
company, I should say. It employs all of
the
20 employed all of the
performed by its employees are
performed by its employees is done
really on behalf
23 done really on behalf
No, that was the company that
No, that was the company where I was
9 was
senior, are those two different
senior vice president. Are those two
different titles?
15 titles?
is broken into each real estate
is broken into - each real estate property
has its own
23 property has its own
that, but for this part, there is
that, but for this part, there are several
different
12 several different
Sterling entity or partners. And
Sterling entities or partners. And then
we would,
12 then we would,
Such as Sterling vessels. We
24 Such as somebody vessels. We
interest on that account, on that
interest on that account, payable
18 accounts, payable
20 Converse, if one of the real estate Conversely, if one of the real estate
18 Manages, the gatekeeper, if you
Manager, the gatekeeper, if you
frequently. So it was partners but frequently. So it was partners, but
sometimes the
9 sometimes the
Equities Funding?
6 Equity Funding?
There was banks that we had
There were banks that we had
agreements with, lending
17 agreements with, lending
will, in an account with Madoff?
17 will, in account with Madoff?
account. It was practical to break accounts. It was practical to break that
account and
17 that account and
money coming out of Sterling
money coming out of Sterling Equities
Funding to go into
8 Funding to go into
partners of the Sterling entity?
5 partners on the Sterling entity?
determination made at outset
determination made at the outset.
Whether that was an
3 Whether that was an
Madoff, or it may be administrative,
Madotf, or it may be an
requiring
21 administrative, requiring
Part of the farm system?
10 Part of the Fund system?
structured today, there is the accounting
structured today, there is the
function,
20 accounting functions,
about. And if there was any
about and if there was any involvement.
7 involvement. I really

I

REASON
Gammatical error
Transcription error
Grammatical error
Transcription error
Transcription error
Transcription error
Grammatical error;
Transcription error
Grammatical error
Transcription error
Grammatical error
Grammatical error
Grammatical error;
Transcription error
Transcription error
Grammatical error

Grammatical error
Grammatical error
Transcription error

Transcription error
Transcription error
Grammatical error
Grammatical error
Grammatical error
Grammatical error
Transcription error
Grammatical error

Transcription error
Transcription error
Transcription error
Transcription error
Transcription error
Grammatical error

Grammatical error

CONFIDENTIAL

PAGE

LINE
88

89
89
90
91

92
99

102
112
112
114
115

115
116
119
126
128
132
142

148
148

150
155
164
173
173

182
183
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SIPC v. BLMIS No. 08-01789-BR:
Rule 2004 Examination of Arthur Friedman
EXHIBIT A
ORIGINAL
involved with Ann, whos the
director of human

CHANGE
REASON
involved with Anne, who's the director of
human
Grammatical error
16

4 Yes. But always with assistance of Yes. But always with the assistance of
Transcription error
Do I know? No.
21 Do now, no.
Transcription error
least 15 years ago, the structure, least 15 years ago, the company took on
a
9 took on a
Transcription error
functions, to relieve - going way functions, to relieve me - going way
back, I was,
15 back, I was,
Transcription error
Forgot the name of the firm, but
it's
I forgot the name of the firm, but
19
Transcription error
your "in" box, an email in your 'in"
Transcription error;
box, will it
your iribox, an email in your inbox, will it Grammatical error
15
didn't get it, of Sterling Stamos,
are going to get to it, Sterling Stamos,
which was a
7 which was a
Transcription error
where we owned 575 Fifth
When we owned 575 Fifth Avenue, which
we don't own
10 Avenue, which we don't own
Transcription error
Corvettes, I don't know if you
Korvettes, I don't know if you remember
that.
Grammatical error
14 remember that.
believe we had a - that that was believe we had a company that audited
Sterling
Transcription error
15 audited, Sterling
guess would describe Sterling
guess would describe Sterling Equities
Associates and
19 Equity Associates and
Transcription error
Sterling Equities Funding, if that's the
Sterling Equity Funding, if thars
case it's
20 the case it's
Transcription error
person or people prepare bank
person or people prepare bank
reconciliations,
16 reconciliation,
Grammatical error
Do we know how Fred Wilpon
Do you know how Fred Wipon knew
Grammatical error
7 knew
8 Gains were virtually flat.
Gains or virtually flat
Transcription error
19 Oftentimes I would do it, yes.
Often times I would do it, yes.
Grammatical error
by buying puts
13
Transcription error
speaking to the partners.
17 speaking to the partner,
Grammatical error
2 did explain me within Sterling.
did explain it to me within Sterling.
Transcription error
The word that we used, in the
The word that we used, "in the market," Grammatical error
20 market
Steriing or individually, did you
Sterling or individually, did you deal with
dealing with other brokerage
other brokerage firms?
Transcription error
8 firms?
in for planning purposes could be in, for planning purposes - could be any
number of
Grammatical error
11 any number of
questioning how he does it, and some
questioning how he does it, and
lauding him for
Transcription error
2 some lauding for
Do you recognize the next two
Do you recognize the next two pages?
9 pages
Grammatical error
looks like iVs the same basic page Looks like it's the same basic page with
some
Grammatical error
10 with some
then there was a few that were
then there were a few that were just not
KW, they
Grammatical error
1 just not KW, they
connected Travelers, I think he
connected to Travelers, I think he was
connected to
Grammatical error
5 was connected to
about it perhaps rather than what about it perhaps; rather than what he
said before,
14 he said before,
Grammatical error
Not to me direct no. To somebody
Not to me directly no. To somebody in
8 in
Grammatical error
Why do you think Mike was the
Why do you think Michael was the other Transcription error
22 other

2

SIPC v. BLMIS No. 08-01759-BR:
Rule 2004 Examination of Arthur Friedman
EXHIBIT A

CONFIDENTIAL

PAGE

LINE

207
213
232
240
240
254
254
257
257
257
257

259
260
262

265
272
272
279
280
283
283
285
285

286
289

ORIGINAL
break, whatever you guys do.
7 Lets go off the
That was Madoff Realty
10 Associates was our internal
No, I don't have a recollection of

REASON
CHANGE
break, whatever you guys want to do.
Let's go off the
Transcription error
'1 hat was Madoff Realty Associates, our
internal
Transcription error

No, I don't have a recollection of any at
Polk & Wardwell, LLP I'm here with my
colleague,
Karen Wagner, and Greg Nero of
Sterling Equities, on
Wilpons and the Madoffs
Wilpons and the Madoffs vacation
together?
6 vacations together?
talking about their personal assets. Do
talking about their personal
the
23 assets. - do the
initiated, periodically when there
initiated, periodically when there were
excess funds
6 was excess funds
open a new account and
open a new account and somebody
would say, "we're
10 somebody would say, Were
opening a new account." And there
opening a new account. And
would be a memo
11 there would be a memo
funding, for example, wherever
Funding, for example, wherever there
might be or
18 there might be or
deviations from those two matters deviations from those two matters of
obtaining an
4 of obtaining,
that recognized and entitled to
that is recognized and titled as such by
the IRS.
16 such by the IRS.
Madolt had purported to make you Madoff had purported to make you a
shareholder
16 a shareholder of
that he was spending all the time that he was spending all this time on
taxes for
9 on this taxes for
Particularly since Mr. Katz' other Particularly since some of Mr. Katz's
other partners belonged
3 partners belonged
seemed strange that you singled
seemed strange that he singled him out
5 him out
that I received the call from Bernie
that I received a call from Bernie very -20 very I don't know that he answered me
I don't know that he asked me the
19 the
consulted on whatever decisions had to
consulted in on whatever
be made,
19 decisions had to be made,
partners' meetings that take place partners' meetings that take place every
other Monday
23 every Tuesday
reproduced to the trustee's
reproduced' to the trustee's counsel - this
is all
23 counsel. This is all
laid out in correspondence in the laid out in correspondence - in the same
form that
24 same form that
productions and wholesale. There productions and reproduced wholesale.
There has been a request
2 has been a request
Sterling Group Of Companies and Sterling group of companies and the
Sterling
3 the Sterling
6 at
Polk & Wardwell, LLC I'm here
with my colleague,
Karen Wagner, and Greg Nero
23 Sterling Equities, on

Transcription error
Transcription error
22
Transcription error
Grammatical error
Grammatical error
Grammatical error
Grammatical error

Grammatical error
Grammatical error

Transcription error
Transcription error
Transcription error
Grammatical error
Transciption error;
Grammatical error

Transcription error
Transcription error
Transcription error
Transcription error
Transcription error
Grammatical error
Grammatical error

Transcription error'
Grammatical error

So You Just point of
305
308
309

1 information,
23 I really can't say for certainty.
1 So I can't say for certainty.
brochure or when you received

309

13 the - Yeah. - the

So you - Just point of information,
I really can't say for certain.
So I can't say for certain.

Grammatical error
Grammatical error
Grammatical error
Transciption error;
brochure or when you received the - the Grammatical error

3

SIPC v. BLMIS No. 08-01789-BR:
Rule 2004 Examination of Arthur Friedman
EXHIBIT A

CONFIDENTIAL

PAGE

LINE
321

325
326
334
334
334
338
353
353
355
357

358
358
364

365
366
366
367
367

368
372
372

372
380
380
380
382
383
383
384

444
399

3

ORIGINAL
account, I just want to make sure
it's a part of

CHANGE
accounts, I just want to make sure it's a
part of

REASON
Grammatical error

6 equity's percentage at some point. Equities percentage at some point.
Grammatical error
20 Sterling Equities funding.
Sterling Equities Funding.
Grammatical error
the only one whose social security
the only one whose associate
number is on
3 security number is on the
Transcription error
7 your associate security number? your social security number?
Transcription error
and Ruth Friedman. You would
and Ruth Friedman. You would use my
social
10 use my associate
Transcription error
"treats". I use the language as
"buy". I use the language as though he
actually
9 though he actually
Transcription error
just a good idea which nobody
just a good idea, which nobody
disagreed with, to
6 disagreed with, to
Grammatical error
had discussions with IV
had discussions with Ivy Management
Transcription error
25 Management
be in instances money was
be that in instances money was removed
from Madoff and put into
6 removed from Madoff into
Transcription error
look forward to Account 218, You look forward to account 218, you would
see it's the
16 would see it's the
Grammatical error
There's certain analysis that we
There's certain analyses that we did we did not
Grammatical error
2 did we did not
Mets. - or was there a business
Mets - or was there a business reason
for backing
Grammatical error
7 reason for backing
5 I don't remember giving a thought, I don't remember giving it a thought,
Transcription error
taking us too long to get your
taking us too long to get your accounts
into the
21 account into the
Grammatical error
can see a lot of the LLC accounts can see a lot of the LLC accounts which
we're talking
15 which were talking
Grammatical error
Ray had $30 million to invest and ] hey had $30 million to invest and then
borrowed
21 then borrowed
Transcription error
16 Okay. "Whereas a collateralized Okay. Whereas a collateralized
Grammatical error
account," did you use that phrase account, did you use that phrase to
mean accounts
17 to mean accounts
Grammatical error
indicated - I don't know if it was
indicated - I don't know if it was he - we Grammatical error
2 he. - we
others? I don't know if I interrupted investers? I don't know if I interrupted
you. You had
Transcription error
4 you. You had
law that passed about laundering law that passed about laundering money
- there
Grammatical error
8 money. - there
was more restrictions placed at
were more restrictions placed at that
time from that
9 that time from that
Grammatical error
15 say to outsiders?
say two outsiders?
Grammatical error
16 To outsiders, yes.
Two outsiders, yes.
Grammatical error
believe we did that. Two partners
believe we did that. To partners
perhaps, just to
Grammatical error
19 perhaps, just to
someone within the Sterling Group someone within the Sterling group of
companies as
7 Of Companies as
Grammatical error
5 No. I'm talking about the letter
No. I'm talking about the lines of credit
Transcription error
the regular Sterling Equities
the regular Sterling Equities Funding
borrowing
Grammatical error
6 funding borrowing
partners that they obtained other
partners that they obtain other
insurance.
18 insurance,
Grammatical error
It was either AF et al. or SPK et
It was either AF et al. or SBK et al. I
used
6 al. I used
Transcription error
computer, at the bottom there are tabs
computer, at the bottom there is
1, 2, 3,4, et
25 tabs 1,2, 3,4, et
Grammatical error

4

SIPC v. BLMIS No. 08-01789-BR:
Rule 2004 Examination of Arthur Friedman
EXHIBIT A

CONFIDENTIAL

LINE

PAGE

409
409
410
410
411

412
417
417

417
417
417
421

425
425
434
439
462
462
464
466
472
477
478
486
506
510
513
515

523
523
536

ORIGINAL
name of the account. If it were L.
9 Thomas Osterman,
et al. tenants-in-common, that's
10 the way the check
check made out to Osterman et
15 al., tenant-in-common
and then have checks to each
20 partner and their
a tenant-in-common? Talking
21 about individual record
18 she would write,
knew there was going to be
4 distributions,
7 company, but group itself,
it was few and far between,
11

because it is TIC is

either not an entity unto itself, it's
12 just a
they had any TICs had a checking
20 account, they would
9 Other than a guy name Klein just how is it defined, passed the
8 information on
Yeah, speak to him directly, one

CHANGE
name of the account. If it were L.
Thomas Osterman
et at., tenants-in-common, that's the way
the check
check made out to Osterman et aL,
tenants-in-common
and then have checks to each partner in
their
a tenant-in-common? Talking about an
individual record
she would write them.
knew there were going to be
distributions,

REASON

Grammatical error
Grammatical error
Grammatical error

Transcription error
Transcription error
Transcription error
Grammatical error
Transcription error

it was few and far between, because it is

- a TIC is

Transcription error

either is not an entity unto itself, it's just
Transcription error

a

they had - any TICs had a checking
account, they would
Other than a guy named Klein
Just how is it defined, I passed the
information on

Grammatical error
Grammatical error

Transcription error

Yeah, to speak to him directly, one on
Transcription error
ii Provide property insurance for the They provide property insurance for the Transcription error
would have been, if it wasn't
would have been, if it was asked. But, on
the
Transcription error
13 asked. But, on the
work under Christopher Lovely,
work under Christopher Lovely. It's Lee
Cibelli,
6 It's Lisa Belli,
Transcription error
Lisa Beth is the bookkeeper who is Lee Cibelli is the bookkeeper who is
now, still with
7 now, still with
Transcription error
Mr. Koufax into Madoff?
8 Mr. Koufax in to the Madoff?
Transcription error
yesterday, the larger accounts the yesterday, for the larger accounts the
efficiency factor
1 efficiency factor
Transcription error
that otherwise would be taxable, if that otherwise would be taxable, if it was
used for
Grammatical error
24 it were used for
You went to the Bank of America You went to Bank of America and said
we want to
17 and said we want to
Transcription error
30, so let's just talk with that one. 30, so Iets just talk about that one. That
was the
Transcription error
13 That was the
24 But I think the collateralized loans But I think the collateralized loan
Grammatical error
if there were particularly good
in there were particularly good months
and there were
22 months and there was
Grammatical error
one of the first, aside from Judy
one of the first, aside from the Judy and
Iris accounts
Transcription error
15 and Iris accounts,
pages of this document, seem to page of this document, they seem to be
an email
22 be an email
Transcription error
that there had to be sometimes
there had to sometimes be an exchange
of
Transcription error
24 exchange of
the month did, or we could go on, the month did, or we could go on, were
the numbers
16 was the numbers
Grammatical error
of what the return was as at the
of what the return was as of the date the
date that I was
22 date that I was
Transcription error
was no changes made by Madoff, were no changes made by Madoff, but
that's only an
4 but that's only an
Grammatical error
12 on

5

c

CONFIDENTIAL

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540
543
545
556
560
569

574
576
604

604
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615
620

622
626
628
638
641

655
655
656
681
681

682
684
686
690

SIPC v. BLMIS No. 08-01789-BR:
Rule 2004 Examination of Arthur Friedman
EXHIBIT A

ORIGINAL
resisting to it, resistance to it in
19 any way?
an hour later or next day, I don't
7 recall

CHANGE

REASON

resisting it, resistance to it in any way?
an hour later or the next day, I don't
recall

Transcription error

Transcription error
There was a quarterly account
There was a quarterly accounting that
8 that
Transcription error
6 with 401(k)
with the 401(k)
Transcription error
21 These notes that I'm taking from a These are notes that I'm taking from a
Transcription error
5 that they had interest in?
Transcription error
with being a Ponzi scheme or any with it being a Ponzi scheme or any kind
of fraudulent
14 kind of fraudulent
Transcription error
25 clearly in, and bavid Katz.
clearly involved, and David Katz.
Transcription error
-I here were also other checking
There was also other checking that
17 that
Grammatical error
do with certain Quicken operations
do with me - certain Quicken operations Transcription error
19 where they
It just enabled us tothis was a
9 Just enabled us to - this was a
Transcription error
might have been some general
there might have been some general
instruction to dispose
5 instruction to dispose
Transcription error
in performing those functions
14 as performing those functions
Transcription error
occur among others and reported occur among others and were reported
back to you?
6 back to you?
Grammatical error
transfer funds, anybody, partners
ransfer funds if anybody, partners
whated to invest
24 wanted to invest
Transcription error
15 There was some funds that were There were some funds that were
Grammatical error
10 were ensued.
ensued.
Transcription error
4 I show you what's been marked as I'll show you whaVs been marked as
could be opened retroactive to January
could be opened retroactive
2000?
19 January 2000?
of keeping records. Nobody is - of keeping records. Nobody is - the IRS
nor anybody
21 IRS nor anybody
with his relationship with the
was his relationship with the daughter,
with his
21 daughter, with his
extent it is based on legal advise, extent it is based on legal advise, we will
claw it
2 we will call it
clawbacks or in the context of the clawbacks in the context of the Bayou
case?
23 Bayou case?
statements made by the Trustee. There
statement made by the Trustee.
was a lot
13 There was a lot

Transcription error

4 nephews a partnership Bon-Mick - nephews a partnership, Bon-Mick amounts. There were withrawals. It
accounts. There were
would all
19 withdrawals. It would all
11 his answer. Were you finished? with his answer. Were you finished?

Grammatical error

6

Transcription error
Transcription error
Transcription error
Transcription error
Transcription error
Grammatical error

Transcription error
Transcription error